At The Fed, The More Things Change, The More They Stay The Same

Last week, Federal Reserve Chairman Janet Yellen testified before Congress
for the first time since replacing Ben Bernanke at the beginning of the month.
Her testimony confirmed what many of us suspected, that interventionist Keynesian
policies at the Federal Reserve are well-entrenched and far from over. Mrs.
Yellen practically bent over backwards to reassure Wall Street that the Fed
would continue its accommodative monetary policy well into any new economic
recovery. The same monetary policy that got us into this mess will remain in
place until the next crisis hits.

Isn't it amazing that the same people who failed to see the real estate bubble
developing, the same people who were so confident about economic recovery that
they were talking about "green shoots" five years ago, the same people who
have presided over the continued destruction of the dollar's purchasing power
never suffer any repercussions for the failures they have caused? They treat
the people of the United States as though we were pawns in a giant chess game,
one in which they always win and we the people always lose. No matter how badly
they fail, they always get a blank check to do more of the same.

It is about time that the power brokers in Washington paid attention to what
the Austrian economists have been saying for decades. Our economic crises are
caused by central bank infusions of easy money into the banking system. This
easy money distorts the structure of production and results in malinvested
resources, an allocation of resources into economic bubbles and away from sectors
that actually serve consumers' needs. The only true solution to these burst
bubbles is to allow the malinvested resources to be liquidated and put to use
in other areas. Yet the Federal Reserve's solution has always been to pump
more money and credit into the financial system in order to keep the boom period
going, and Mrs. Yellen's proposals are no exception.

Every time the Fed engages in this loose monetary policy, it just sows the
seeds for the next crisis, making the next crash even worse. Look at charts
of the federal funds rate to see how the Fed has had to lower interest rates
further and longer with each successive crisis. From six percent, to three
percent, to one percent, and now the Fed is at zero. Some Keynesian economists
have even urged central banks to drop interest rates below zero, which would
mean charging people to keep money in bank accounts.

Chairman Yellen understands how ludicrous negative interest rates are, and
she said as much in her question and answer period last week. But that zero
lower rate means the Fed has had to resort to unusual and extraordinary measures:
quantitative easing. As a result, the Fed now sits on a balance sheet equivalent
to nearly 25 percent of US GDP, and is committing to continuing to purchase
tens of billions more dollars of assets each month.

When will this madness stop? Sound economic growth is based on savings and
investment, deferring consumption today in order to consume more in the future.
Everything the Fed is doing is exactly the opposite, engaging in short-sighted
policies in an attempt to spur consumption today, which will lead to a depletion
of capital, a crippling of the economy, and the impoverishment of future generations.
We owe it not only to ourselves, but to our children and our grandchildren,
to rein in the Federal Reserve and end once and for all its misguided and destructive
monetary policy.

Congressman Ron Paul of Texas enjoys a national reputation as the premier
advocate for liberty in politics today. Dr. Paul is the leading spokesman
in Washington for limited constitutional government, low taxes, free markets,
and a return to sound monetary policies based on commodity-backed currency.
He is known among both his colleagues in Congress and his constituents for
his consistent voting record in the House of Representatives: Dr. Paul never
votes for legislation unless the proposed measure is expressly authorized
by the Constitution. In the words of former Treasury Secretary William Simon,
Dr. Paul is the "one exception to the Gang of 535" on Capitol Hill.